Just Another Manic Tuesday

If the 3-day weekend ramp job can hold, it’ll be 20 positive Tuesdays in a row.  But there’s a catch: ES just tagged the .618 Fib retrace at the top of what looks like a decent falling channel and a backtest of the rising purple channel’s .75 line.

A close up:

In short, holding these levels could be difficult.  I don’t think there’s any value in chasing this rally, and will look to short into it at the .618.

SPX will play catch up with the futures on the opening, perhaps up to its own .618 at 1667.45.  But, DX is showing strength and EURUSD is showing weakness.  This is likely a bounce on the way lower for equities.

UPDATE:  9:38 AM

That should about do it for SPX.  Shorting again at 1668, stops around 1670 — the bottom of the recently broken red channel.  The .786 is just above at 1676.13 if it should push higher.

It makes a difference which level SPX reaches on this initial push.  A rally to the .786 is much more likely to be the terminus of the corrective wave, while the .618 potentially sets up a move to 1681 to complete a Bat Pattern.

UPDATE:  9:46 AM

Looks like the .786 is in play.  I’ll continue to play along on the upside, with stops at 1667.  Since we got a bump last Thursday up to the .382, there’s the possibility SPX has the .886 in sight for a Bat Pattern.

Many of the recent tops have been followed by a .886 retracement.  But, it’s usually after a drop of more than 3%.

The dollar has held the large white channel midline thanks to renewed weakness in the yen and continuing weakness in the euro.  A push through the red channel midline should see the index up to the white .786 at 85.471 in the next few days.

The USDJPY recently completed a Crab Pattern to a 2.24 extension at the .75 line of the purple channel that’s guided the pair higher since last August.  It fell back to the 1.272 level, and is currently back-testing the channel midline.

Though the .618 at 105.57 is definitely on my radar, I believe it won’t happen until the pair first retreats to the bottom of the purple channel channel — probably around 99.30-99.50 early next week.  This suggests continuing weakness in equities before any new highs can be expected (look for an updated USDJPY forecast after the close today.)

The EURUSD is selling off nicely this morning, with our target of 1.28 – 1.2775 looking better by the hour.

If 1.2744 should fall, however, there is much lower potential.  I’ll post the pair’s updated forecast after the close today.

UPDATE:  10:45 AM

SPX is currently backtesting the bottom of the red channel (1670ish.)  The likely target is still the .786 at 1676.13.  I’ve redrawn the falling purple channel, which intersects with the .786 in the next couple of hours.

 continuing

UPDATE:  11:35 AM

SPX pushed below the .618 Fib at 1667 and continues to leak a little lower — triggering our 1667 stop.  I’ll pick up an interim short position here, but this is likely a backtest of the yellow dashed TL from the 1994-2002 lows.  Keep an eye out for a reversal around 1665.  If it pushes through, the next lower support is around the broken purple .75 line around 1662.

Remember, not every retracement has to be to a Fibonacci level. This morning’s rally got to 1674.21, less than 2 points from the .786.  It’s a perfectly acceptable corrective wave 2 if, as I suspect, there is additional downside ahead.

The question came up the other day regarding the likelihood of Harmonic Patterns completing.  While certain patterns point to or suggest a subsequent move, they say nothing about the odds of reaching an ultimate goal — only the odds of a reversal upon reaching a goal.

We had a potential Point B at the .382 on May 23.  It opens up the possibility of a Bat Pattern at the .886 of 1681.29.  If I saw corroborating patterns such as a channel top or midline, another Harmonic Pattern, etc. I’d definitely give it extra consideration. It increases the odds, but never ever becomes a certainty.

At the end of the day, that’s the essence of my charting/investing technique: playing the odds, trying to find agreement among Harmonic Patterns, Chart Patterns and other technical analysis means to anticipate turning points — and being on the right side of the trade if/when they arrive.

UPDATE:  1:00 PM

The top of the falling purple channel, which is pure speculation on my part, intersects with the .786 in about 45 minutes.  It would make for a nice A-B-C corrective wave.  Right now, SPX is lurking around the yellow TL and the midline of a rising channel (white) I’ve drawn off the 1635 low.

UPDATE:  1:22 PM

SPX just broke down below the midlines/TL intersection.  I’ll likely close the long position and go short only with any push below the purple .75 line — currently around 1663.  I like the idea of a tag at the intersection of the rising white channel bottom and the .382 around 1655 in the next 45 minutes.

UPDATE:  1:29 PM

Full short here at 1663.  Watch for support around 1655.50.

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